US largest movie studios have recently filed a lawsuit against MegaUpload and its former employees, where they demand millions of dollars in damages. The entertainment industry accused the file-hosting service of encouraging piracy. In response, MegaUpload’s legal team said it is a nonsense claim.

Several months ago the US Department of Justice released its evidence against the now defunct MegaUpload in order to help the civil parties willing to launch their own cases against the file-hosting service.

Apparently, the Motion Pictures Association of America has long been working on a lawsuit, as a number of movie studios, including Disney, 20th Century Fox, Columbia Pictures, Paramount Pictures, Universal, and Warner Bros., have all teamed up to file a lawsuit against MegaUpload.

The lawsuit was started against MegaUpload, its founder Kim Dotcom and its former employees Mathias Ortmann and Bram Van Der Kolk. MegaUpload is claimed to be a business created to facilitate copyright violation and the movie studios are now looking for millions of dollars in damages. They complained that after MegaUpload received a DMCA notice, the company would only remove the URL, without touching the actual file and other URLs pointing to it.

While the studios believe that it was done to make the infringing content available, they forget that removing the actual files would be overbroad and sometimes just wrong. For instance, if you store your legitimate files on the hosting service but want to take illegal copies offline, you definitely would not want MegaUpload to delete the original as well.

In addition, the MPAA cited MegaUpload’s reward program as piracy promoting means. The movie studios claimed that it was established to reward people who shared popular pirated movies. As such, the rewards served as an incentive to advertise links to MegaUpload via other websites.

In response, MegaUpload reminds that it was predominantly used for backup rather than for file-sharing as the movie studios claim. The company noted it paid minimal money to uploaders, and terminating the rewards program didn’t affect the number of visitors.

The recent lawsuit is expected to become a vital one for the future of cloud hosting services in the US, and a backup plan for when the criminal case fails. The industry observers also remind that the MPAA previously settled its lawsuit against Hotfile, and now seems to have hopes for another win against MegaUpload. The latter, however, believes that it’s protected by the DMCA safe harbor. Aside from this lawsuit, MegaUpload has also been sued by Microhits two years ago, but that case has been frozen pending the outcome of the criminal proceedings.